Union Budget 2017: An Apparent ‘Populist Budget’ In The Making

Union Budget 2017: An Apparent ‘Populist Budget’ In The Making

The Modi Government has been synonymous with ‘Startup India’ since January 2015, when it first began encouraging the Indian startup ecosystem and its showrunners. If 2015 was all about ‘Start Up India, Stand Up India,’ followed by the formation of the Fund of Funds of INR 10,000 Cr, then 2016 saw PM Narendra announce the bold move forward to a new Digital India – first with the House agreement on implementing the GST (Goods and Services Tax) and then with the demonetisation drive, which has been in effect since November 8, 2016.

2016 also saw India jump 15 spots on the Global Innovation Index to number 65, and gain a score of 130 in ease of doing business, all of which would seemingly be seen as good news for startup entrepreneurs.

But, budgets in India have traditionally been about treading a middle ground between giving in to what the masses want versus what the government can afford. And in the case of the startup ecosystem, the apparent heir to the Indian economy, not much had changed with Union Budget 2016, aka #VikasKaBudget.

Union Budget 2016: Not Such A #VikasKaBudget

While the government introduced a few sops to appease entrepreneurs, MSMEs in the form of focus on Aadhar-powered India Stack, registering businesses in one day, three-year tax rebate for startups earning less than INR 50 Lakhs in revenue as well as tax breaks for patent research, allotting INR 50 Cr for women and SC/ST entrepreneurs among other things, the majority of the key players felt that the government, as always, had not been ‘bold enough’ while announcing the Union Budget 2016.

In fact, Sandeep Agarwal, founder of ShopClues and Droom said, “As an entrepreneur, I was hoping that government will include following topics:

  • Capital for entrepreneurs should be more accessible and cheaper.
  • Some tax benefits for start-up in terms of capital gain and dividend taxes.
  • Offering R&D credits and lower costs for innovations.
  • Listing rules should have been further streamlined for startups.
  • Repatriation of capital (R&D credit from foreign countries) should be more accessible.

It has to be kept in mind that for a country with a diverse population and a prominent rural-urban divide such as India, the onus on bringing about change and impacting startups is as much the responsibility of the Central as well as individual state governments.

To this end, the governments of Orissa, Rajasthan, Tamil Nadu, Kerala, Gujarat, Karnataka, and Andhra Pradesh have been at the forefront of championing the startup cause in their respective states by announcing Startup Policies. While Odisha’s Naveen Patnaik led a delegation of industry bigwigs to pledge millions of dollars in developing the state’s nascent startup ecosystem, Rajasthan’s Vasundhara Raje introduced a slew of reforms to make the state processes completely digital, a feat that was allegedly accomplished in March 2016, itself.

Such positive reforms notwithstanding, BVR Mohan Reddy, Chairman of Nasscom in 2016 commented on the #VikasKaBudget, expressing his disappointment in not seeing the following concerns addressed:

  • Removal of dual levies on software products
  • Domestic investors continue to face higher tax rates – Angel taxation, higher long term capital gains tax
  • Revision of criteria to carry forward losses to allow for capital infusion in business not considered
  • Transfer pricing issues related to safe harbor margins, APA (advance pricing agreements) roll-back rules not notified
  • Rationalisation of tax structure awaited. So far announced for new units in manufacturing set up on or after 1 March, 2016
  • No roadmap on MAT and different cess rationalisation
  • Research & Development credits not applicable for technology sector, lowering of deduction rate not conducive to encouraging tech R&D
  • Clarifications not provided on place of provision of service rules

Pre-budget Expectations 2017

Now it is that time of year again – budget time. And the startup ecosystem is once again abuzz with what could be coming on February 1, 2017, when our esteemed Finance Minister Arun Jaitley will be announcing the Union Budget for the year 2017-2018 – a full month before, as it usually gets announced on the last day of February. But this again is in keeping with the Modi Government’s way of doing the unexpected, and keeping the taxpayers in suspense over its next moves.

In keeping with the general theme of ‘Cashless India,’ which has come into major focus in the last few months, one of the sectors expected to benefit from the new budget is fintech.

Shailaz Nag, COO of Naspers-owned third-party payment portal PayU India said, “The demonetisation drive needs to be followed by strong, systematic and organised steps by the government, and we need to rope in users from tier 2, 3 and 4 cities and towns. My only expectation from the Union Budget 2017 is the availability of enough funds dedicated to imparting and increasing knowledge and creating awareness amongst Indian users, both merchants and consumers, on how to pay and accept payments digitally.”

Bhavin Turakhia, a key player in the startup ecosystem and co-founder of the $300 Mn Directi Group also expressed the same sentiment when he said,

“The Union Budget should include definitive SOPs and tax rebates to encourage and boost e-payments. Moreover, to achieve the goal of financial inclusion, the government should also rationalise indirect taxes and charges levied with respect to digital payment transactions, and further incentivise companies operating within this space. To adapt to the need of time, government should also rationalise income tax provisions including provisions related to employee tax benefits such that payments/ documents in the digital medium are treated at par with physical instruments.”

Sectors such as edtech, travel are also expected to see significant growth and traction with the travel sector expecting to see ‘20% growth in the coming financial year. Housing and infrastructure too are areas that the government is expected to be focussing on.

As Manish Goel, founder and Director of Research And Ranking mentioned, “In the past one year, there have been a few potentially long-lasting changes drawn up in the Indian real estate sector that includes passing of RERA (Real Estate Regulation and Development Act 2016), and the Benami Transactions Act and now the demonetisation move will ensure that the transparency in the system improves tremendously boosting demand from genuine home buyers.”

But the real expectations of the Union Budget 2017 have a lot to do with what investors – the lifeblood of the Indian startup ecosystem – gain for themselves, whether it is in the form of rebates, less red tapeism and more. And this sentiment is perfectly rounded off by Ashok Vashisht, the founder and CEO of end-to-end mobility provider Aaveg, “Investors are investing in India to multiply their investment. They do not have a social agenda.”

He further added, that to ensure strong financial returns for investors coupled with economic growth, the government needs to:

  • Upgrade Infrastructure in line with global standards
  • Ensure fair and uniform taxation policies and enforcement
  • Provide Equal opportunities for large and small businesses
  • Government in India is a big buyer of products and services as well. Current government procurement policies are biased in favour of large suppliers. The budget needs to correct this bias.
  • Promote Indian Services industry globally.”

Demonetisation, the passing of the GST Bill, and the rolling out of UPI – India has seen a lot of radical changes in the last one year, the effects of which are still being felt by ordinary people. With just days to go for the announcement, every taxpayer in the country is all ears on what changes (major/minor) the new budget will bring for themselves, for the startup ecosystem and for India, as a whole.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.

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